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Why one little waiver could be a really big deal for Medicaid

Dylan Scott covers health care for Vox. He has reported on health policy for more than 10 years, writing for Governing magazine, Talking Points Memo and STAT before joining Vox in 2017.

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The Trump administration has a huge question sitting in front of it: Should states be allowed to partially expand their Medicaid programs under Obamacare?

That's what Arkansas has asked to do. It's an issue with huge implications, for both government finances and the millions of people who are covered by Medicaid expansion.

Quick reminders: Under Obamacare, states could expand Medicaid eligibility to up to 133 percent of the federal poverty level. The federal government picked up 100 percent of the costs for Medicaid expansion at first — a substantial increase from the usual federal match for traditional Medicaid, which is closer to 50 percent. That generous federal funding will eventually decline to 90 percent, but never lower than that.

Medicaid expansion was originally expected to be mandatory, but then the Supreme Court ruled that states must have an option to decline. Nearly 20 states have since refused to expand, leaving up to 2.5 million Americans in or near poverty without coverage.

The Obama administration was willing to make some concessions to Republican-led states to entice them to expand — imposing nominal premiums, for example — but it had red lines. Partially expanding, up to only 100 percent of the poverty line instead of 133 percent, was one the previous administration wouldn't cross.

But the Trump administration might. Arkansas has formally asked to limit its expansion population to 100 percent of poverty and below. Everybody with a higher income would buy private coverage on the health care law's marketplaces, with tax subsidies from the federal government to help pay their premiums.

The comment period on the state's waiver request ends today; a decision could come in the next few months.

Friends of VoxCare Adrianna McIntyre, Allan Joseph, and Nicholas Bagley walked through the issue in the New England Journal of Medicine. Here is what I took away from their analysis:

  • States have a big financial incentive to limit their Medicaid expansion population. Starting in 2020, they are responsible for 10 percent of the costs. But on the exchanges, the federal government picks up the full tab. So from the state perspective, fewer people in Medicaid expansion and more people on the exchanges is cheaper for the state. That's why partial expansion is appealing to them.
  • Once one state gets a partial expansion accepted, expect more to follow, even bluer states. Massachusetts Gov. Charlie Baker, a Republican, is already floating a partial expansion to save money for his state.
  • The bottom-line impact: Higher costs to federal taxpayers, both because they're paying the full cost and private coverage tends to be more expensive, and likely higher costs for the people moving out of Medicaid (which has very low if any cost-sharing) into private coverage (with bigger deductibles and out-of-pocket costs).
  • The other big open question: Would more of the 19 states that have refused to expand Medicaid come on board if they could pursue a partial expansion? That could lead to millions more people gaining insurance.

You can see some fascinating tradeoffs in play here. There are real risks for people with little disposable income if they are moved from Medicaid to the exchanges. At the same time, maybe that's a price worth paying if it helps convince more states to cover their most vulnerable citizens when they have so far resisted.

I asked Eliot Fishman, who oversaw Medicaid waivers during the Obama administration, how he thought about these questions while he was in charge.

The first thing he pointed out was that there was a legitimate legal question about whether partial expansions were even permitted. If a state does get partial expansion approved, litigation would likely follow.

But even with that "murky" legal uncertainty, the Obama administration eventually concluded that trading Medicaid for private coverage wasn't a good deal for the program's enrollees who would transition to private insurance.

"That would be worse for a population that is very near poverty in terms of their out of pocket costs, in terms of the benefits that Medicaid provides," Fishman told me.

The administration also believed that more states would pursue partial expansions if they opened that door, given how it would help their budgets. "It is very hard for states not take advantage of that," Fishman said.

I pressed Fishman on whether partial expansion might nevertheless be a worthwhile tradeoff, given the millions of people currently left without coverage because their state has refused to take the full expansion. He seemed unpersuaded and focused on two points.

First: Yes, the Obama administration had made its own deals with Republican-led states on Medicaid expansion waivers. For example, some states are using their Medicaid expansion money to enroll people in private insurance. Arkansas also pioneered that model.

But those demonstrations, Fishman argued, had a legitimate value in answering decades-old questions about how the public program compares to private insurance. That is the very purpose of Medicaid demonstration waivers, after all.

Partial expansions or other proposals that the Obama administration rejected but Trump's administration might accept — like work requirements — don't have the same evaluative value, he said. They simply limit access to the program.

"That doesn’t really have any demonstration content," Fishman told me. "That would have been a purely 'How far are we willing to jettison decades of work on Medicaid?'"

Fishman's other concern, if partial expansion is accepted, is that states will push farther. Why should it stop at zero to 100 percent of poverty? Could a state next propose to cover only zero to 50 percent? Or certain populations, like the homeless?

It could then become a backdoor way for states to whittle down their Medicaid expansion rolls while still drawing the generous federal funding that Obamacare provides.

"Once you open that door, you could see millions of people losing coverage over time," he said.

Chart of the Day

Anaele Pelisson / Business Insider

I should have been a doctor, in one chart. Notice anything peculiar about this chart of the highest-paying job in every state, by annual salary? They're all in medicine. Read more from Business Insider.

Kliff’s Notes

With research help from Caitlin Davis

Today's top news

  • "Trump steps up attacks on McConnell for failure on health-care reform": “President Trump stepped up his criticism of Senate Majority Leader Mitch McConnell on Thursday for not muscling through a health-care bill, escalating an extraordinary fight with a key leader of his own party.” —John Wagner, Ed O'Keefe and Paul Kane, Washington Post
  • "Conservative groups call on Congress to suspend Obamacare taxes": “A coalition of conservative groups Thursday urged congressional leaders to suspend or repeal Obamacare's taxes targeting insurers and medical device manufacturers.” —Kimberly Leonard, Washington Examiner
  • "Health ‘Navigators’ Brace for Decision on Their Funding": “The Trump administration must decide within weeks whether to continue funding organizations that help people enroll in health insurance through the Affordable Care Act, one of several imminent choices that could signal the administration’s larger approach to the law.” —Michelle Hackman, Wall Street Journal

Analysis and longer reads

  • "The ACA stability "crisis" in perspective": “The big questions about the stability of the Affordable Care Act marketplaces have focused on how fast premiums will rise, and how many plans will participate. But an equally important question, and the heart of the matter politically, is: How many people will be affected by the sharp premium increases?” —Drew Altman, Axios
  • "Heads Up: Healthcare Is Still in Trouble": "The issue of the US health insurance system was taken off the front burner with the evident failure of the Republican effort to repeal and replace the Affordable Care Act. But while it may not be in the headlines as much as it once was, the health care system in the United States is still in need of serious attention.” —Rob Garver, Fiscal Times
  • "Andy Slavitt Wants to Unite America on Health Care": “I hope people who continue to support Trump find that they cannot see eye to eye on the political approach he has taken on health care — but I think people’s minds are changed not by fact but by something that they feel and discover themselves, and you have to allow that opportunity to happen.” —Ana Marie Cox, New York Times

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